More than ten years after the last global financial crisis, hedge funds are still struggling for survival. Deloitte reports that almost all asset management firms experience narrower profit margins and unproductive markets.
Luckily enough, Tokenizer you help leverage blockchain technology to return to a productive status quo.
How rapid technological developments are a stumbling block for fund managers
When you add the issues of narrow profit margins and stagnant markets to hedge funds’ unique vulnerability to rapid changes in technology- as these funds usually venture in a wide range of industries- you get a crisis in the making. The quick rise of the Internet of Things (IoT), augmented reality (AR), virtual reality (VR), cryptocurrencies, and blockchain make it difficult for hedge funds managers to create and maintain sustainable strategies.
Redemptions are increasing as the world economies experience quick changes. With them, a rising number of reporting requirements consumes time that hedge fund managers would instead use in establishing new investments. Therefore, hedge funds must undergo rapid changes for them to survive.
How blockchain technology can revive hedge funds
Among the rapid technologies mentioned above, one of them is a seed of renewal, and not of destruction. On the surface, blockchain may appear to be one of those rapidly changing elements that complicate life for hedge funds. However, in reality, blockchain technology is a hedge fund saviour.
The reason lies within the technology’s efficiency and security. The number one aspect of blockchain technology is immutability. Blockchain transactions cannot be altered, making them permanent and secure for that matter.
Besides, permissioned blockchain guarantees users of each other’s verified identity outside the system, building trust and fulfilling Know Your Customer (KYC) requirements promptly. Only a transaction’s participant can access the transaction details.
The speed and security of transactions in a permissioned blockchain make it the right solution for hedge fund managers to leverage as they look for ways to grow profit margins- by anywhere between 24 to 36%.
In addition, a good understanding of open blockchain technology can support hedge fund managers only to choose investments which embrace blockchain technology in their daily operations. Knowing the type of technology that will best benefit a particular business will give hedge fund managers a competitive edge in picking the best investments.
Limited access to hedge funds
Since the downside risk of inexperienced investing is quite high, regulators limit the access of hedge funds to only ultra-high net worth investors and institutional investors, because they enjoy access to professional advice and adequate funds to fight volatility.
Well-performing hedge funds highly prefer institutional investor capital, considering their long-term investment horizons and “sticky” capital. This makes it highly unlikely to gain access as an individual investor, even as an ultra-high net worth investor.
What does this imply to the rest of us? Until now, there have been limited ways for affluent investors to access top-performing hedge funds directly. Besides, liquidity is almost impossible because of long lock-in periods.
Bringing liquidity and access to hedge funds with smart contracts
Blockchain networks store data in a secure, decentralized ledger while smart contracts act as the underlying codes that automatically perform given conditions. Using this technology to hedge fund investing and alternative investments enables access and liquidity for potential investors.
Investors can own a security token in a hedge fund, which represents a digital certificate of ownership, just like a stock in a business. Through crypto exchanges, investors can freely trade these tokens for immediate liquidity.
This allows a large pool of investors to own even a small portion of top-performing hedge funds, and exist when the need arises without being subject to the often years-long lock-in periods of most top hedge funds.
Tokenizer is a blockchain investment banking platform for issuing, fundraising, investing, and trading in Asset-backed Tokens. Leverage on our end-to-end Defi infrastructure to convert your assets into asset-backed tokens, enabling more efficient and easier fundraising, investing and trading.